Investment property in Acadiana
Done being a landlord. Here is how the exit works.
Most landlords who call are not in trouble. They are just finished. The question is not whether to sell, it is which exit costs the least in tax, time and aggravation.
Two versions of the same sale
Sell it occupied, or sell it empty
This is the fork that decides everything downstream: who your buyer is, what the house has to look like, and how long it takes.
Occupied, with the lease attached
Investor buyer- Who buys it
- Another investor. They are buying the income, so the rent roll and the payment history matter more than the countertops.
- What they want to see
- The lease, the deposit ledger, the rent history, and whatever repairs you have deferred, stated honestly.
- The Louisiana catch
- A recorded lease generally follows the property. An unrecorded one generally does not bind the buyer. Check the conveyance records before you promise either.
- Showings
- Limited, and dependent on a tenant's cooperation. Plan for that rather than around it.
Empty, on the open market
Owner-occupant buyer- Who buys it
- Somebody who wants to live in it, which is usually the larger and higher-paying pool.
- What they want to see
- A house that photographs well and survives an inspection and an appraisal.
- The cost of getting there
- Ending the tenancy properly, then paint, flooring, and whatever three tenants in a row did to the place.
- The gap
- Every month it sits empty is a month with no rent and the same insurance, taxes and note.
If the tenancy has to end first
Do it by the book
Louisiana has a specific procedure and there are no shortcuts in it that survive contact with a judge. A notice to vacate, then a rule for possession filed in the appropriate court, then a judgment. Changing the locks, cutting the power, or removing a tenant's belongings is not shorthand for eviction. It is a separate problem you have created for yourself, and it is expensive.
The version that usually works better and faster than any of it: pay the tenant to leave on a date you both agree in writing. A month of rent forgiven and a moving cost covered is cheaper than a contested rule for possession and far cheaper than a sale that collapses because access was refused.
General information, not legal advice. Louisiana eviction procedure turns on your lease and your parish. Talk to a Louisiana attorney before you file anything.
What actually comes out
Costs a landlord forgets to count
- Depreciation recapture
- The depreciation you took every year comes back at sale. This surprises people more than anything else on this list.
- No primary residence exclusion
- The exclusion that shelters gain on a home you lived in does not apply to a rental you did not.
- Vacancy while you prepare it
- Rent stops the day the tenant leaves and the note does not.
- Turn costs
- Paint, flooring, appliances, and the repairs you have been deferring because somebody was living there.
- Commission and closing costs
- On a listing. On a direct sale the condition is priced in instead.
Ask a CPA what the tax number looks like on your specific property before you decide. It moves the answer more often than the sale price does.
Landlord questions
The five that come up every time
Can I sell with a tenant still living there?
Yes. What changes is who the buyer is. A lease that is recorded in the parish conveyance records generally follows the property, so the buyer takes the house with the tenant and the lease terms attached. An unrecorded lease generally does not bind a purchaser under Louisiana's public records doctrine. Which side of that line your lease sits on is one of the first things to check, because it decides whether you are selling a house or selling an income stream.
Do I have to tell the tenant I am selling?
Your lease governs access and notice, and it is the document to read first. Practically, telling them early goes better than telling them late. A tenant who finds out from a photographer at the door is a tenant who stops cooperating with showings, and showings are how a listing sells.
What happens to the security deposit?
It has to be accounted for. Louisiana requires a landlord to return the deposit, or an itemized statement of what was withheld and why, within one month of the lease ending. In a sale, the deposit is normally transferred to the buyer at closing and the obligation goes with it. Get that in the purchase agreement rather than assuming it.
Will I owe tax on the sale?
Probably more than you would on a primary residence. The capital gains exclusion for a home you lived in does not apply to a rental, and the depreciation you claimed over the years is recaptured when you sell. A 1031 exchange can defer it if you are buying another investment property, and it has strict deadlines that start at closing. Talk to a CPA before you sign anything, not after.
The house is rough. Is it even worth listing?
Sometimes. A tired rental with deferred maintenance often appeals to the exact buyer pool that is looking for one, and listing it as an investment property with the rent roll attached reaches people who are not scared of a punch list. Where that stops working is when the house will not pass a lender, because then the buyer pool collapses to cash only and you are effectively in the as-is market anyway.
Occupied or empty, either is fine
Start with the lease
Whether there is a tenant, whether the lease is recorded, and what it rents for. That is enough for a real answer on both exits.
Check it yourself
Law and tax, at the source
Every claim on this page can be checked against a public source. These are the ones it rests on.
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Louisiana law, in full
Successions, usufruct, indivision, partition and mineral servitudes are all in the Civil Code, published by the state.
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IRS
The federal rules on capital gains, the primary residence exclusion, depreciation recapture and like-kind exchanges.
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HUD fair housing
What the Fair Housing Act protects, and how to file a complaint if you believe you were treated differently in a housing transaction.
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Verify a license
Louisiana licenses are public record. Search a license number before you sign anything with any agent, including this one.
Related
Where to go next
The pages most people read after this one.
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Compare your options
Four paths for a house that has to move quickly, and what each costs in money and in weeks.
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Listing versus cash
The full arithmetic on one house, three ways, with the assumptions written down.
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Prep to sell
Which repairs pay for themselves in this market and which never do.
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Free valuation
A comparative market analysis from a person, against an automated estimate.